LIMITED LIABILITY PARTNERSHIP-PART-XX - Investigation

[Dr. Sanjiv Agarwal]

The provisions of investigation of LLPs are covered in Section 43 to Section 54 of LLP Act, 2008. Section 43 provides the circumstances in which the Central Government can initiate investigation into affairs of an LLP. Section 44 to Section 49 relates to the requisites and procedures of investigation. These Sections provide that if partners of LLP make an application for investigation, it should be supported by the prescribed evidences, the inspectors for investigation should not be a firm/association or a body corporate and the appointed inspectors have powers to inspect associate entities of LLP also along with other powers required to investigate. Further, partners and designated partners of LLP are duty bound to assist the inspector and to produce the required records or information. An inspector also has the powers to examine on oath and to seize the records relating to LLP after he takes an order of the magistrate in this regard. After the investigation, the inspector is to submit the report to the Central Government who shall forward a copy of the report to LLP and other related parties. Sections 50 to 52 empower the Central Government to act on the report of the inspector issued under Section 49. Section 50 empowers the Central Government to prosecute the guilty. Section 51 empowers the Central Government to present a petition for winding up of the LLP if the report reveals the circumstances justifying winding up. Section 52 empowers the Central Government to initiate proceedings for recovery of damages of LLP or any associated entity. Section 53 provides for the person responsible to bear the expenses of investigation andSection 54 provides that the inspectors' report issued under Section 49 shall be considered as an evidence in relation to any matter contained in the report. Rules 28 to 31 of LLP Rules prescribe procedural requirements and forms to be used in relation to investigations.

Section 43 to 54 in Chapter IX of the Act deal with provisions in relation to investigation into the affairs of any LLP. Accordingly, the Central Government can suo moto or on the recommendation of the tribunal or any Court appoint inspectors to carryout the investigation of affairs of LLP. Statement of objects and reasons annexed to LLP Bill, 2008 also stated that the Central Government shall have powers to investigate the affairs of an LLP, if required, by appointment of competent inspectors for the purpose.

Overview of Provisions relating to Investigation

In general , following is the overview of various provisions relating to investigation of affairs of an LLP -

(1) The Central Government shall appoint one or more inspectors to investigate the affairs of the LLP and to report thereon, if:

(a) The Tribunal, either suo moto, or on application received from not less than one-fifth of the total number of partners of the LLP, orders the investigation of the affairs of the LLP.

(b) Any court, by order declares that the affairs of the LLP ought to be investigated. [section 43(1)].

(2) The appointment of inspectors may also be made:

(a) If not less than one fifth of the total number of partners make an application with supporting evidence and security amount.

(b) If the LLP makes an application that the affairs of LLP ought to be investigated.

(c) If the Central Government opines that there are circumstances suggesting that- 

(i) the business of LLP is being or has been conducted with an intent to defraud creditors, partners or any other person, etc.

(ii) the affairs of the LLP is not conducted in ,accordance with the provisions of this Act.

(iii) On the receipt of a report from the registrar or any other investigating authority, stating sufficient reasons that the affairs of the LLP ought to be investigated. [section 43(3)].

(3) No firm, body corporate, or other association shall be appointed as an inspector. (section 45).

(4) The inspector appointed by Central Government under this Act shall have the power to investigate the affairs of associated entities, etc. (section 46).

(5) It shall be the duty of designated partner and the partners of the LLP to preserve and to produce all books and papers before the inspector, and to give all assistance in connection with the investigation. [section47(1)].

(6) The inspector may, with the previous approval of Central Government, require any other entity to furnish information, books and papers before him or any other person authorized by him. [section 47(2)].

(7) The inspector may retain the books and papers for thirty days and thereafter shall return the same to the LLP. [section 47(3)].

(8) The inspector shall have power to examine on oath designated partners or partners and any other person in relation to the affairs of LLP or any other entity but only with the previous approval of Central Government. [section 47(4)].

(9) The notes of examination shall be in writing and signed by the person whose examination was made on oath, a copy of such note shall be given to the person so examined on oath and thereafter can be used as evidence by the inspector. [section 47(6)].

(10) The inspector shall have the power of search and seizure of documents if he has reasonable ground to believe that such documents may be destroyed, altered, falsified, or secreted. He shall have to make an application to the judicial magistrate of the first class or the metropolitan magistrate, as the case may be. [section 48(1)].

(11) The magistrate, may by order, authorize the inspector to enter with such assistance as he require, to search that place specified in the order, to seize books and papers which the inspector considers it necessary for the purpose of his investigation. [section 48(2)].

(12) The inspector may, if directed by the Central Government, shall make interim reports to that Government and on conclusion of the investigation, shall make a final report to the Central Government. [section 49(1)].

(13) The Central Government shall forward a copy of the report made, to the LLP at its registered office and also to any other entity or person dealt with or related to the report. If it thinks fit, the Government may also furnish a copy of the report to any other person related to or affected by the report on the payment of prescribed fees [section 49(2)].

(14) If it appears to Central Government that any person in relation to the LLP whose affairs have been investigated, has been guilty of an offence, the Central Government may prosecute such person for the offence. (section 50).

(15) The Central Government may, unless the LLP is being wound up by the Tribunal, cause to be presented to the Tribunal by any person authorized by the Central Government on this behalf, a petition for the winding up of LLP on the ground that it is just and equitable that it should be wound up. (section 51).

(16) The Central Government in the public interest may bring proceedings on behalf of the LLP or any other entity, whose affairs have been investigated, for the recovery of damages and property. (section 52).

(17) The expenses, in the first instance shall be defrayed by the Central Government but the following persons shall be liable to reimburse the Central Government the said expenses:-

(a) any person who is convicted on a prosecution.

(b) any entity in whose name, proceedings are brought as aforesaid shall be liable, to the extent of the amount or value of any sums or property recovered by it as a result of proceedings. [section 53(1)].

(18) The amount of expenses in respect of which any limited liability partnership will be liable to reimburse the Central Government shall be recoverable as arrears of land revenue [section 53(3)].

(19) A copy of any report of any inspector, duly authenticated in such manner as may be prescribed shall be admissible in any legal proceedings as evidence in relation to any matter contained in the report. [section 54].

= = = = = =